Banks Optimistic on Economy Still Keep Cutting Expenses

NEW YORK (TheStreet) -- You could follow what banks say, or what they do. Or at least what they say they are going to do, which is cut expenses.

Cutting expenses is the theme that emerges from a review by Goldman Sachs financial services analysts of their most recent conference last week. The conference was held Tuesday and Wednesday and the latest report from Goldman (one of several they published on the conference) was published Monday.

"On the expense side, banks see opportunity to further reduce headcount and branches (albeit at a slower pace vs. 2013), and believe investments in technology, regulatory, and compliance costs should largely be in the run-rate by next year," Goldman's analysts wrote. "In terms of revenue improvements, commentary was more modest with banks noting they are managing what they can."

These phrases from Goldman's analysts offer a somewhat more bearish picture of the economy than the headlines (including our own) that came from CEO speeches.

Both Bank of America (BAC) CEO Brian Moynihan and Wells Fargo (WFC) CEO John Stumpf, for example, cited the mood of business banking clients in feeling more optimistic about the year ahead. 

Nonetheless, both CEOs said 2014 would be similar to 2013 in many respects. And much of their discussion of expenses, similar to that of JPMorgan Chase (JPM) CEO Jamie Dimon focused on legal and regulatory costs.

Indeed, the bullish thesis on Bank of America for some time has been based on expense reduction, and Moynihan hewed closely to that theme in his comments last week. Moynihan said what Bank of America refers to as Legacy Asset Servicing expenses will go down by $1 billion per quarter next year as the bank lays off people it hired to address troubled home loans.

Bank of America faced new scrutiny over its process for reviewing home loan modification requests Monday with the publication of a Bloomberg News story that focused on an outside contractor called Urban Lending. That contractor sent letters to troubled homeowners using stationary that said it came from the Office of the Bank of America CEO. However, the bank has already faced censures and fines from regulators as well as lawsuits for much, if not all of the activity described in the article, and the stock market shrugged off the report. Bank of America shares were up 0.92% to $15.32 in early trading Monday.

Atlantic Equities analyst Richard Staite expects Bank of America 2014 non-interest expenses of $60.4 billion, down from an expected $67.8 billion in 2013. Revenue, meanwhile, will rise to $91.4 billion from $88.8 billion, according to Staite's forecasts. Staite has an "overweight" rating on Bank of America.

As for Wells Fargo, Staite expects non-interest expenses of $47.7 billion for 2014, down slightly from his 2013 forecast of $48.5 billion. Staite sees revenue ticking up to $84.7 billion from $84.4 billion over the same time period. The analyst has an "underweight" rating on Wells Fargo.

-- Written by Dan Freed in New York

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